Meanwhile, the company’s sales continued to slide in July, 2019. The total sales fell by 28 per cent YoY to 10,927 units in July 2019 over July 2018, whereas the total domestic sales fell by 29 per cent to 10,101 units in July 2019 over the same month in the previous year.
According to Moody’s Investor Service, the outlook for auto manufacturing remains negative as global sales of light vehicles are set to keep falling amid geo-political dangers including the US-China trade conflict and Brexit.
Given the weakness in domestic M&HCV volumes with the industry declining by 17 per cent YoY in the quarter coupled with elevated channel inventory levels, analysts at Antique Stock Broking have reduced volume growth and earnings estimates.
The brokerage firm expects a volume CAGR of -3.3 per cent (from -1.5 per cent earlier) over FY19-21e. Higher costs related to BS VI transition and negative operating leverage would impact profitability in FY21e, leading to declines in EBITDA margins by around 180bps to 9 per cent. Consequently, EBITDA CAGR is also expected to decline by 8.6 per cent over FY19-21e.
Analysts at Dolat Capital downgraded Ashok Leyland to ‘Reduce’ due to lower-than-expected pre-buying of BSVI driven vehicles, GST related uncertainty, slowdown in the economy, and slightly higher inventory of 40-45 days. This, they say, will lead to lower dispatches in Q2FY20, and significant pressure on export sales.
The brokerage has lowered EPS by 20 per cet over FY19-21E to factor the slowdown in M&HCV. Ashok Leyland is stepping up its presence in other segments, especially in LCVs. This will partly shield the business from cyclicality over the medium term, it added.
At 10:44 am, Ashok Leyland was trading 10 per cent lower at Rs 62 on the BSE, as compared to a per cent decline in the S&P BSE Sensex. The trading volumes on the counter nearly doubled with a combined 55 million shares changeing hands on the NSE and BSE so far.